Superinvestor Ivan F. Boesky is guilty of greed and corruption on a scale unimaginable to those of us who only dabble occasionally in the stock market. Even so, he and a handful of other high-flying financiers who play the takeover game are getting a bad rap. They are being singled out for insider trading practices that are in fact commonplace. And they are being blamed for causing the instability in today's financial markets, when in fact their actions are only byproducts of systemwide instability.
Certainly, some of Boesky's misdeeds are reprehensible. His violation of securities law was so clear-cut that even he, surrounded by a battery of America's best legal minds, agreed to fork over the unprecedented sum of $100 million as a fine rather than attempt a courtroom defense.
That he broke the rules is not at issue. What is at issue is just how realistic those rules are, what effect the Securities and Exchange Commission's widening Wall Street dragnet will have, and where the blame for the increasing transformation of American capital markets into Las Vegas-style casinos really lies.
Insider trading will not disappear, no matter what regulations are passed against it or what powerful investors are publicly censured. It is as endemic to our financial system as bootleg whisky during Prohibition.
Whether we care to admit it or not, insider information--not just about corporate takeovers but also about products, management decisions, financial strategies and the like--is the lifeblood of modern equities markets. We live in the Information Age, in which an enormous premium is placed on being the first to get and use any bit of information, and in which the best and brightest of our young people are trained as amoral bloodhounds dispatched from their MBA programs with the smell of profit in their nostrils.
Professional money managers who now dominate American finance have routine access to information that small investors cannot hope to get. Brokerage firms trumpet their superior ability to glean corporate information as part of their advertising campaigns. Professional analysts and investors on a first-name basis with CEOs of publicly traded corporations inevitably learn critical facts about a company's prospects long before the general public does. Financial-newsletter empires have been built in the secondary market for insider information, purveying clues and tips on what the Boeskys of the world are up to.
Foreign cultures seem to have less problem in recognizing the reality that powerful investors who have risen to the top of an inherently speculative business will use their position to speculate further. Had Boesky been conducting his activities in Hong Kong instead of here, it is doubtful that they would have been construed as illegal. Tokyo, now the world's second-largest market after New York, is a haven for all sorts of legal insider activities deemed scandalous in the United States.
We Americans like to cling to the illusion that Wall Street, the most plutocratic sector of our society, is democratic. The notion that the New York Stock Exchange is a "level playing field," where billionaire investors and grandmothers with 10 shares have equal access to information, is as untenable as suggesting that the rich man and the poor man are equal because both have the same freedom to sleep under the bridge at night. The playing field has never been level--and never less so than today, when sophisticated technology, highly specialized research capabilities, instantaneous reaction times and complex diversification strategies are mandatory to any serious participation in the market.
Boesky-bashing is easy enough, considering the unadulterated contempt for the law exhibited by so many of the arbitrageurs, takeover specialists and junk bondsmen on today's financial scene. But it misses an important point of context: It is not the mere say-so or charm of these characters that sends stocks soaring when they say that a takeover game is afoot. Rather, corporate raiders usually make a convincing case for why a poorly managed company could be worth a lot more restructured.
And that, perhaps, is the real reason that certain powers-that-be are going after the Boeskys. The captains of American industry don't like the idea that these pesky outsiders can skewer the fat and waste rampant in today's bloated corpocracy and impose radical alternatives.
The Boesky phenomenon is not the cause of frenzied speculation in today's financial markets. The blame for that lies elsewhere, particularly in the convergence of the Reagan Administration's relentless march toward the deregulation of financial services, coupled with the fundamental weaknesses in American industry and its management.
Throw hundreds of new financial products onto the market, allow thousands of unqualified new players into powerful institutional positions, rewrite the tax law, diminish oversight and blur the boundaries between traditional conflicts of interest, and you create an interesting playing field for those with Boesky's acumen and clout. Add to that mix volatile interest rates, widening trade and budgetary deficits, continuing decay of basic industry and the lack of any sustainable national industrial policy, and wrap it all in Reagan-style worship of the "free market," and you have just created the formula that will inevitably give rise to the Ivan Boeskys and their ilk.